First Niagara Financial Group Inc. (NASDAQ:FNFG)
Q1 2014 Earnings Conference Call
April 24, 2014 10:00 AM ET
Ram Shankar - IR
Gary Crosby - President and CEO
Greg Norwood - SVP and CFO
Welcome and thank you all for standing by. At this time, all participants are in listen-only mode. At the end of the presentation we will conduct a question-and-answer session. (Operator Instructions) This call is being recorded. If you have any objections, you may disconnect at this point.
Now, I’ll turn the meeting over to your host, Mr. Ram Shankar. Sir, you may begin.
Thank you, Rayn [ph]. Good morning, everyone. Thanks for joining us this morning. With me today are Gary Crosby, President and CEO; and Greg Norwood, our Chief Financial Officer. Before we begin, this presentation contains forward-looking information for First Niagara Financial Group. Such information constitutes forward-looking statements which involve significant risks and uncertainties. Actual results may differ materially from the results discussed on the forward-looking statements. A copy of the earnings release and an investor deck are available under the Investor Relations section at firstniagara.com.
With that, let me turn the call over to Gary.
Good morning, everyone and thank you for joining us. I’m going to apologize upfront for my voice and I’m going to do my best to keep my cough under control here, so bare with me. Before Greg walks you through the quarterly results, let me take some time to update you on where we stand on a few key topics. As we announced at the end of March we’re really pleased to welcome Joe Saffire to First Niagara as Executive Vice President of our Commercial Banking Group. Joe brings with him more than two decades of commercial banking experience at much larger banks where has designed and executed product development plans and growth strategies. He is also very familiar with the markets in which we operate, and we’re pleased to have someone of Joe’s caliber joining the team. He starts on Tuesday.
Next our first quarter operating results. We experienced strong loan growth both in our commercial and indirect auto segments. Our loan origination platforms continue to perform well with 8% overall annualized quarter-over-quarter loan growth. Further our credit metrics remain solid with net charge offs in line with our recent averages. Consistent with what you have heard so far from others, typical seasonality and the cold weather, particularly in our footprint impacted fee income generation this quarter and I think also gave me this head cold.
Next let me provide some additional thoughts and a status update on our strategic investment plan that we announced in January. There are three components to this spend. First, about one half of our strategic investment plan cash spend will be focused on specific new products and service enhancements that will generate additional revenue. The second component, which is about 25% of the cash spend is on what we call our next gen infrastructure.
These investments are primarily focused on reducing our overall operating cost and operational risk. And the third area of focus, which is about 25% again is on product integration capabilities that will significantly reduce our cost of delivering the first two components I just mentioned. The third piece is truly a differentiator that allows us to lower, both our build and operate cost while increasing our speed to market and maximizing our product capabilities.
Also, I would add that we’re not betting on any particular vendor or product. To the contrary the next gen infrastructure and integration layer will enable us to continue simplifying our environment and leverage newer products and services in the market as they become available.
Now I’ll drill down a little bit more on all three components. First on additional revenue generation. This is the continuation of a strategic plan we laid out in the fall of 2012. The key priorities at that revenue projects will achieve include; greater customers acquisition, whether it’s the upper middle market borrower with sophisticated cash management needs or a core deposit customer attracted to our robust online digital portal.
By the way, we continue to see early success in our remote deposit capture platform. After only two months since its launch we are seeing strong traction with adoption and usage rates continuing to trend in the right direction. The second key priority is greater fee income generation both in the commercial and retail segments of our franchise, third, greater volumes particularly on the direct consumer channels; and fourth, effective cross selling using CRM and customer data to customize financial solutions.
Moving on to next gen infrastructure, these investments will drive sustainable operating leverage and lower the cost to serve our customers. It’s common for a mid capital regional bank to have a distributed technology model that uses many different vendors. With the investments we’re making, we’ll be able to further consolidate our distributed model which will drive a reduction in the overall number of vendors involved. This will reduce the per transaction fees we pay, improve the customer experience and address one of the key concerns that customers and regulators are focused on today, cyber security.
The last piece of our overall investment will be to redesign our technology integration architecture, that is create a simpler and less costly environment in which to build, integrate and evolve our products and services so we achieve that plug and play environment I mentioned in January and increase our speed to market. At the same time we will have reduced product integration risk and our overall IT budget. Also included here is our investment in integrated data analytics which will enable us to better understand our customer preferences and give us a true 360 degree view of our customers.
While I want to emphasize that our strategic investment plan is not driven by technology, the simple fact is that banks are extremely dependent on technology to operate and that dependency is growing rapidly. Banks much be prepared to compete in the digital marketplace, where simple, easy and fast are prerequisites to success and better more efficient technology is a means to substantially improve profitability and shareholder value.
Now let me spend a few minutes on how we’re managing the execution of our strategic investment plan, the governance. First, every senior leader reporting to me has ownership and personal accountability for each of the projects they sponsor for their businesses. Second, our IT group has been reorganized around our strategic investment plan to make sure that the right talent including consulting experts is in the right places to help ensure success and we have organized management student committees comprised of the project owner, independent project management, finance and the executive leadership team to oversee key decisions and the overall project status.
Further we have a very effective enterprise program management organization or EPMO in place with deep experience in project management leadership and core operating system conversions. We are confident that we have the right project management people in place to provide the oversight and transparent reporting to help ensure success.
And finally the board has formed a technology committee. By doing this they have created strong oversight of these projects at the board level and coupled with our management governance will hold us accountable for meeting or exceeding the financial performance target.
As far as project status goes, while we are still early in the planning phase, we are on time and we are on budget with our overall program expectations. We are actively enhancing our business cases and building detailed program execution plans. These detailed plans will provide the exact scope and timelines for the 15 discrete programs that make up the strategic investment plan. This is best practice to progressively build out the business cases, timelines and execution plans in the planning phase and before execution.
As the old saying goes there is no amount of execution that can make up for poor planning. We are actively working with a few key consultants to assist in the detailed planning effort while at the same time ramping up our own resources necessary execute and then operate our new capabilities.
To conclude my team, and I are focused on executing on our strategic investment plan to ensure longer term shareholder value while delivering the best possible financial performance in the near term. We continue to attract top talent with larger commercial banks. These individuals are making a real difference in our day to day operations as well as our transformational strategic investment plan.
That concludes my prepared remarks. So I’ll turn it over to Greg now for a quick recap of the quarter.
Thanks Gary and good morning. Today we reported GAAP EPS of $0.15 per share, which included 8.3 million of after tax or $0.02 of restructuring charges, largely related to our recently announced branch staffing realignment, consolidations and executives’ departure charges. Operating EPS for the quarter was $0.17. We also had a modest net benefit from our investments in certain historic tax credit originated by our commercial real estate business. While confusing the accounting requires us to gross up the impact of these investments and we recognize them both as a reduction to fee income with an offset that reduces our income tax expenses. To be clear this is not related to the LIHTC accounting change where some folks have early adopted that this year. We will adopt that accounting next year and it will have an immaterial impact on us.
Revenues excluding the historic tax credit amortization charge of 7.5 million declined 4% quarter-over-quarter driven in part by normal fee seasonality, lower NII from two fewer days in Q1 and items that benefited NII last quarter. At 3.33% net interest margin was a couple of basis points shy of our guidance primarily due to lower than expected CRE prepayment income. The good news of lower payoffs is we retained some higher yielding assets.
The compression from previous quarter reflect ongoing pricing pressure on loans from the competitive landscape. Loan growth was good with average loans up 8% annualized linked quarter and end of period loans up 6%. C&I loan growth was a source of strength this quarter with 12% annualized growth. Operating expenses increased quarter-over-quarter; however expenses came in a little lighter than we expected primarily due to lower commission expenses, lower healthcare cost and other miscellaneous items. Another good quarter on credit was 36 basis points of originated charge offs, which is in line with the 2013 levels. Further we resolved some credit to help drive a 10% decrease in originated non-performing loans.
Moving to the balance sheet on Page 6, average loans increased 8% annualized exceeding our guidance. C&I loan growth contributed more than half of the commercial loan growth. About 80% of the commercial loan growth was in the middle market segment and was driven by a combination of small increases in line utilization, as well as new client acquisitions. In terms of geography, growth was particularly strong in New York and Western Pennsylvania markets. The relationship managers that we’ve hired more recently with some larger commercial bank competitors are driving some of this growth.
Portfolio growth was also very granular with the largest loan being $12 million and well diversified across multiple sectors. Average commercial real-estate loans increased 7% quarter-over-quarter, reflecting strong origination activity across all CRE portfolios like construction, investor real-estate and multi-family loans, coupled with lower pre-payments particularly on acquired portfolio were the drivers of this growth. In terms of geography New York, Eastern PA and New England showed the strongest CRE activity.
Finally overall our commercial pipeline is stable. Average indirect auto loans increased by $160 million to 1.6 billion. During this quarter we originated about $240 million and the yield to us net of dealer reserve was 3.21%, up 15 basis points from last quarter with unchanged FICO scores. The benefit of hiring an experienced team to start this business in early 2012 continues to drive positive results.
To recap where our loan growth has been coming from over the past four to five years, Slide 7 shows the new and enhanced products that we have successfully launched and integrated since 2009 and the resulting loan growth from the investments in these products. These new products have contributed nearly $6 billion in net organic loan growth over the past three to four years and we were able to achieve this growth by hiring top talent that have decades of experience with these business lines at larger competitors.
Moving to deposits, average deposit, transaction deposit balances, which include non-interest bearing and interest bearing checking balances were flat quarter-over-quarter. Interest bearing deposits were down 2% annualized from the last quarter driven primarily by CD balanced decline. Checking balances were relatively flat as seasonal weaknesses in business checking was offset by positive retail balances.
Turning to Slide 8 and 9 for a discussion of net interest income and fee income; net interest income of $271 million was in line with our guidance and declined $10 million from the prior quarter. Approximately $3.5 million of the quarter-over-quarter decline is due to two fewer days. Also if you recall last quarter there were $7 million of items that benefited last quarter’s NII. Those benefits this quarter netted only $1.5 million. So that’s another $5.5 million of the quarter-over-quarter decrease in NII.
The biggest difference compared to the last quarter was the favorable retroactive adjustment on our CMO portfolio for prepayments, which was 1.1 in the first quarter compared to 3.5 in the fourth quarter. This was also the reason for the 32 basis point decline in our RMBS portfolio yields this quarter. Loan yields declined 6 basis points quarter-over-quarter driven by lower CRE prepayment penalty income and the continuation of replacing higher yielding fixed rate loans with lower yielding variable rate loans in this competitive environment
Turning to fee income; fees again excluding the $7.5 million historic tax credit amortization charge that I noted earlier were down $5 million from the prior quarter. Capital markets decline was approximately one half of the overall $5 million due to lowered derivative sales volumes. Consistent with our discussions in prior quarters, the appetite for swapping variable rate loans have diminished in the market given where long-term fixed rate pricing in competitive terms are in the marketplace coupled with the impact of Dodd-Frank.
Consistent to what you have heard from others deposit service charges were down 2.4 million driven by both seasonality and the continuation of industry wide trends of lower NSF incident rates. Mortgage banking income was up modestly quarter-over-quarter while lot volumes declined quarter-over-quarter again on sales margins were down modestly, our cost to originate was down and this contributed to the increase.
Insurance commissions increased 2% quarter-over-quarter, consistent with our expectations. The market remains competitive for both producers and clients. Wealth management fees contributed to the strong trajectory that we’ve seen over the past few quarters, registering a 21% increase year-over-year. The market demand for annuities is driving revenue growth.
Moving on to expenses; total expenses on a GAAP basis were $249 million and included $10 million of pretax costs primarily related to our branch staffing realignment that we announced in January and the consolidation of 10 branches during the first quarter. Excluding these restructuring charge, operating expenses were $238 million up $11 million from the prior quarter. Salaries and benefits increased over $4 million, driven by typical resets of payroll taxes and new hires and was partially offset by lower commission expense and a reduction in our healthcare liability.
Professional services expense increased by $2.6 million driven by consultant cost relative to our strategic investment plan. Promotional campaigns, particularly in our retail segment drove the $2.5 million increase in marketing and advertising expenses. For the full year, we still expect operating expenses to total roughly $980 million with anticipated increase in salaries, professional fees and technology expenses reflecting the investments in people, process and technology associated with our strategic investment plans. Our effective tax rate at 20% was lower than our guidance for 25% to 26%. This lower effective tax rate reflects the historic tax credits that I mentioned earlier.
Slide 11 presents our investment portfolio information. The pie chart showing the mix of credit sensitive instruments is consistent with what we outlined when we announced our HSBC branch transaction in August 2011. Before I move to the second quarter outlook, let me give you a brief update on the CLO aspects of the Volcker rule. While it is clear there is political support to Grandfather Legacy CLOs under the Volcker rule, it is unclear whether there is regulatory interest to fix the unintended consequences. The two year extension of the holding period announced by the Fed earlier in April was a step forward but we will continue to engage our regulators regarding this matter. When we look at our $1.4 billion CLO portfolio using conservative prepayment and call assumptions, our book will materially amortize down between now and July 2017. However in the context of recent developments, we continue to evaluate options including developing structural solutions that can be applied to our CLO securities that would make them compliant with the stated provisions of the final Volcker rule.
Slide ’12 has our outlook for the second quarter relative to consensus models. Overall the $0.18 EPS street consensus estimate for 2Q is consistent with our current expectations. Our net interest margin, we see some modest downward bias to the current street average of 3.29%. Based on a higher starting point this part quarter, our outlook for earning asset growth is modestly above street expectations. In combination, we expect GAAP NII to be largely consistent with the $271 million that the street expects. There will be similar historic tax credit adjustments to fee income offset by associated tax benefit in each quarter in 2014.
Excluding a similar charge of about $7 million in the second quarter, we expect fee income to increase mid to high single digits from the adjusted first quarter number of $84 million. Expense of $244 million for the second quarter is consistent with our expectations. The street’s loan loss provision estimate of $26 million to $27 million is consistent with ours. We expect second quarter net charge offs to average 40 basis points plus or minus of originated loans. Our tax rate in the second quarter should be between 16% and 17% inclusive of the $7 million tax credit benefit related to our historic tax credit investments. For the full year, the tax rate should be between 17% and 18%.
With that Ray, let’s open it up for the Q&A portion of the call.
We’ll now begin the question and answer session. (Operator Instructions) Our first question is coming from Mr. Dave Rochester. Sir you may proceed.
Your core expenses are a bit lower than the guidance for next quarter. I was just wondering how much of the investment plan spend is in the run rate of 1Q and then what you’re expecting will be in the expense base in 2Q specifically related to that?
Dave, its Greg. If you think about the first quarter and the ins and outs, there were some benefits there that helped the first quarter expenses be a little bit lower than our expectation. Also relative to the strategic investment plan, the hiring of people, as well as the engagement of the consultants were beneficial in the first quarter in that some of the hires were later in the quarter. So that caused the first quarter to be a little bit lower. And the consultants, it’s a very competitive environment. So some of the pricing we’re getting is more favorable than we thought.
So as we look forward, we do believe the 244 is the right number. And I guess the best way to think of the impact of the overall strategic investment plan on people, process and technology cost is moving from the 225 in the fourth quarter to the 245 that roughly about 20 million of that by and large is what’s attributable to the combined strategic investment plan.
And if you could just update us on how you’re thinking about capital here. It looks like your ratios all grew a bit this quarter. Are you still thinking you’re okay there in a stress scenario and where do you ultimately want to see your TCE ratio and the Tier 1 common ratios normalize eventually?
Yes, so clearly a small increment this quarter. We expect and see for the remainder of 2014, small increments against each of the regulatory ratios. From a stress test perspective, obviously we filed our information. I feel good about both the process and the outcomes. As far as normalizing, particularly in TCE obviously we stated pretty clearly that we’re in a capital accumulation mode and continue to see that over our long term investment horizon or earnings horizon. As far as final numbers, as we look out to the Basel III and we’ve done our capital planning, we look to having sufficient cushions over the Basel III minimums as they engage and that cushion will depend on the nature of the balance sheet as we approach those Basel III thresholds.
And one last one, can you just talk about the loan pipeline heading into 2Q and how that compares to the pipeline heading into the first quarter? And then how should we look at payoffs here in the acquired portfolio. I know those slowed a little bit this quarter. Are you expecting that pace to pick up in 2Q?
Sure as far as the pipeline, generally stable quarter-over-quarter. I think we mentioned in the last call that December was a very strong month. So by design that pulls down your pipeline a little bit. One of the things that we’ve done is we’re very aggressively -- tracking all of the opportunities in pipeline from very early stage to committed, because clearly in this competitive environment you need more opportunities to close the type of transactions that you want. So we see relatively the same quarter-over-quarter. As far as pay offs, two of that is in the acquired book it was down. It’s really hard to predict the payoffs. We don’t see anything out of the ordinary in the second quarter right now. But one of the things in the payoff that’s difficult is they often come at the end of the quarter as companies are positioning their balance sheets for various reasons. So I can’t really predict it. I would suspect they are kind of average what they were over the last five quarters combined. So maybe a little more prepayments. But it’s real hard to predict Dave.
Our next question is coming from Mr. Matthew Kelly. Sir your line is open.
I was wondering if you have any thoughts on the full year ‘15 tax rates. There have been some changes in New York State tax code. How that might impact the thinking on the ‘15 tax rate? I know it’s going to come up a little bit -- tax credit is kind of our run through. But what are you thinking for the ‘15 tax rate now?
We’ve done some planning on that as you would guess. From an overall effective tax rate we all see the changes in New York as being a significant driver.
And would you be thinking for full year. I know it’s going to go back up, but what does that mean?
Again when we talked in January we didn’t give ‘15 guidance but we would expect it to look more like the effective tax rate in the back of ‘13 than certainly where they are for 2014.
Got it. And what was the average yield in the commercial real-estate originations during the quarter and maybe talk about the trends that you saw there underwriting competition, new yields.
Yes, I think one of the things is the originations are still in that -- that we’re booking are still in that 250 range and we’re really focused on the right type of CRE. We’ve been walking away and I think we’ve been saying that for the last several quarters from a lot of the multi-family where some of the non-bank investors are going significantly longer and significantly more covenant like than we’re comfortable with. We do see real focus from our perspective on the LTV. So the competition is still there. I would say it hasn’t lessened any in the first quarter from the back half of ‘13. But I will tell you clearly, as we said last year, we’ve been less and less successful of the multi-family space over the last six months because we have been walking deals.
We do see some good opportunities in some of the investor real-estate and that’s really across the retail office and industrial warehouse space, as well as opportunities in the construction space. Frankly the historic tax credits, if you think about them in our footprint we do have a lot of federally designated historic sites and rehab of that is what’s generating the historic investment tax credit. And that’s part of the construction growth we’ve seen in our book is builders developing that and us having the opportunity to invest in that part of the development.
Got it. Last question, the decline in banking service charges in kind of consumer banking fees. How would you break that down between just the secular changes that we’re continuing with NSF and overdraft versus the seasonal impacts in the first quarter?
Great question. We didn’t really talk about weather although I can tell you working with our retail guys, we can track the actual weather against the fee income, it can see some pretty clear co-relations. So if you look at where we are I’d say think about may be half is the seasonal and half is the weather. So I think we will expect to see some clear improvement in the second quarter on the banking services fee line.
Our next question is coming from Damon DelMonte. Your line is now open.
Quick question for you on the historical tax credit. I think you referenced Greg that it’s going to drop about 7 million in the second quarter. Can you just give us -- and I’m sorry if I missed this. But could you just give us the projections, like as the quarters progress and how long do you expect this to continue?
Sure. So the way you should think about it is $7 million to $7.5 million is what we reflected in the first quarter. And based on the investments we’ve committed to to-date, we would expect to see similar amounts in each of the next three quarters for 2014. These run on a tax year basis. So the recognition is spread from the point of the investment through the end of the taxable year. So they would not for these particular investments roll into 2015.
From an just an overall perspective, because these are very episodic and driven by the overall business relationship as managed in the CRE business we don’t really forecast these as expected and it wasn’t included in the tax rate that we gave you back in January. So to sum, based on what we have today as far as the committed investments, we would expect to see $7 million $7.5 million in both additional tax benefits for each of the next three quarters and a like amount of reduction in the other income line as well.
Okay, that’s helpful. Thank you. And then I think you guys mentioned that part of the loan growth this quarter was from an uptick in utilization rates. Could you talk a little bit about kind of where your utilization rates are this quarter versus last quarter?
Yes we have a kind of general range that we think goes from like 40% to 43%ish and uptick this quarter was about from 40.5 to plus another point or so. So we’re kind of now right into the middle of that range. So it’s too early to call the ball on line utilization going up but we had about a 1 point increase off of that 40ish base.
Okay. And then I think you guys commented that your strongest growth this quarter came in the upstate New York region and Western Pennsylvania. Can you just comment on your outlook for New England and Easter Pennsylvania?
Sure what. I would tell you too in both the Eastern part was only about a point below the Western PA. So New York was clearly the top, Western the second, but the third and fourth were only like percentage point down in the 6% to 7% range. So I think as I tried to say in my prepared remarks, the growth was pretty evenly dispersed over the geography. So no real big difference between the best, the highest and the lowest. Again we continue to be very optimistic that we’re going to get a lot of opportunities if you think about how we talked about talent in the middle of last year we were very deliberate in both building out in our Tri-State area as well as in our Eastern footprint but also through upstate New York. So talent has been acquired I guess across the footprint and we continue to feel optimistic about what the existing relationships RMs will do and the newer ones as well.
Thank you. Next we have Casey Haire. Your line is now open.
Casey Haire – Jefferies
A couple questions on the NII outlook. First on the new money yields on originated book, how are they coming in versus the existing yields?
Let me give you a couple of thoughts. One from our planning perspective and what we talked about in January, we are maintaining the new origination yields that we anticipated. From a CRE perspective and roll on-roll off is still about the 120ish that we talked about in the past. So that’s one of the tradeoffs I mentioned is while we had less prepayments we’re retaining that positive benefit of the much higher spread. Middle markets, about 40 basis point roll on-roll off decline and I would say business banking is real if relative to that but I would say kind of flattish to slightly down on a roll off-roll on perspective.
Casey Haire – Jefferies
Okay. And positive mix shift was a good story for you guys this quarter. I’m just curious is that what we should expect going forward or is this securities book billing from here?
No the security book we don’t intend to build it any differently than we’ve said last quarter. And so as we continue to grow the commercial book, we will get that positive mix shift that you’re talking about.
Casey Haire – Jefferies
And then just switching to expenses, Greg you mentioned that it’s pretty competitive market for the consultants and some of the pricing areas coming in below what you guys had forecasted. Does that mean that -- where are we versus that 200 to 250? Are we now towards the lower end in terms of the common rails expense longer term?
Yes I mean again as Gary said we’re in the early stages of planning what I was trying to highlight is why we might be a couple of dollars short on the pro-fee [ph] lines. So yes I am not trying to recalibrate the 200 to 250 at this time.
Casey Haire – Jefferies
Okay. And if you’re still by my math the 980 for full year on the expenses, implies a pretty decent expense ramp in the back half of the year. I apologize if I missed this earlier but what are the components of the driver? Is it just ramping cost of common rails or what are the drivers there?
Yes, so what I talked about is as you think of the people, process and technology you’re going to see that growth in the salary and benefits the technology and the pro-fee [ph] line and when I look at the 980 plus or minus, we fully expect that the 245 run rate for the next three quarters is the right way to look at it. Whether that’s plus or minus a little bit will depend on the execution of the strategic investment plans. I wouldn’t recalibrate off of what we told you in January which is in essence a 980 overall and a 245. So at this point I think it’s premature to try to recalibrate the fourth quarter.
Casey Haire – Jefferies
And just last one on credit, criticized up decently here in the quarter. Any color there that could help us out with that and any concerns on your part?
No overall no, I know there is an uptick there but I guess I would balance that out from my perspective as the decline in the NPLs and also notice that that category includes the quote and unquote special mention. So that’s kind of the very early stage and a lot of those migrate back into past type credits.
Next we have Mr. John Pancari. Sir your line is open.
Given your color you just gave on the expenses there, can you kind of put that in context of how you’re thinking about the efficiency ratio on a full year basis for ‘14 as well as ‘15? Thanks.
Sure, well again we haven’t given any kind of guidance for ‘15 beyond the revenue enhancements that we expect in the program relative to ‘16 and ‘17. But clearly as the efficiency ratio moves or as we invest the efficiency ratio is going to be depressed in the short-term. So while it’s higher in this quarter, I don’t really see it changing much for the remainder of the year in ‘14 and you don’t really see the pickup to the target efficiency ratio of, 55% that we talked about in January until you see the full benefit of the strategic investment plan as well as normalized rates out into ‘17.
And then separately on the loan yield front, just one question on the auto book. Looks like your indirect auto book yield for quarter, the average was about 293 basis points but the originations have been trending 3% plus in recent quarters. So can you explain the disconnect there, why the book yield is still below the origination yield?
A couple of things to think about that, first is I mentioned is the roll on this quarter was about 15 bps higher than last quarter and we have been very focused on the profitability of this and balancing yield and volumes. Also what you have is this as a maturing book the reality of it is that some of the higher stuff that we booked early on when frankly the market was not as competitive as it is now is rolling off and paying off. So what you’re seeing is a little bit of that roll on-roll off effect and frankly that’s one of the reasons why we looked at the pricing that we tested around in the first quarter.
And then on the tax rate, other than HTC change and then you mentioned the subsidiary reorg. Any other change to your outlook for your tax rate aside from those items as you look out for the rest of the year? Any other factor that’s impacting it?
For the reminder and if you think about I said for the full year it’s going to be a 17% to 18%. And again the subsidiary reorg or the REIT structure that we announced, that’s providing benefit maybe a little bit slightly higher than we saw. And also, as we looked at this quarter some of the benefit we got from the tax credits on the historic side were offset by modest adjustments to our reserves. So to answer your question, I don’t see any big moves beyond what we talked about in the historic tax credit or the subsidiary reorg in the second quarter, third quarter and fourth quarters.
Our next question is coming from Matthew [indiscernible]. Sir your line is open.
I was just wondering on the historic tax credit, it looks like the only benefit from a financial standpoint is basically the tax benefit from the amortization. Maybe you could just give us some details why you’re pursuing these investments this quarter?
As I mentioned it’s related to the CRE line of business and particularly in our upstate footprint, because of some of the opportunities and the ability now in some cases to both get federal and state tax benefits and the recovery markers, some of these projects that weren’t financially viable in the past for developers are becoming more so.
So in the marketplace you can see up in our upstate footprint in particular there is some benefits. Frankly totally coincidentally, this past week there was an article in the Buffalo news about the very growth aspect I’m talking about here. So it’s related to working with relationship customers where they’re out building into the historic project. And there is an opportunity to participate in the benefits both in the lending from a construction phase as well as the historic tax credit which is a longer term asset. The historic tax credit value is both from the tax credit but also from the economics in that $1.5 million delta you see this quarter is what is the real representation of the economics beyond just the tax credit.
That’s helpful. Thanks. And then Gary I guess this question is for you. You mentioned in your prepared remarks the organization’s excitement over Joe Saffire coming on board. It looks like Joe is coming to the organization most recently from Well Fargo in London but obviously has vast experience from his time in HSBC. Could you just provide some more background on how long it’s been since he’s fees operated at the banker within your footprint? Thanks.
It’s probably been half a dozen years or more. But when Joe was here at HSBC he was the top commercial leader for the 16 state footprint which includes our own geography and he has continued to maintain his networks in those footprints and he absolutely will hit the ground running when he gets here.
No more questions at this time. (Operator Instructions) No further questions sir.
All right. Thanks again for joining today’s call and we look forward to talking all of you again in another 90 days. Bye.
That concludes today’s conference. Thank you for participating. You may now disconnect.
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